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Natixis John Hailer

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Spike in market volatility driving investors to diversify portfolios, says Natixis

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Investment professionals shifted client portfolios away from stocks in favour of bonds and alternative assets in the first quarter to limit the impact of increasing market volatility, according to data from Natixis Global Asset Management. 

The moves exemplify an emerging trend where the financial markets seem to be increasingly rewarding diversified portfolios.

The average moderate-risk portfolio in the Natixis Portfolio Clarity Trends Report gained 0.61 per cent in the first three months of 2016, but portfolios with greater diversification fared best. The best-performing portfolios, those in the top quartile of the sample, gained 1.5 per cent in the quarter, benefitting from the lowest allocation to stocks (43 per cent of assets), the highest allocation to alternatives (9.7 per cent) and the largest “diversification benefit” (22.4 per cent), a measure of how much risk is reduced through diversification. The report is based on a review of 352 moderate-risk portfolios submitted to Natixis by US financial professionals.

In the first quarter, the average portfolio in the study had 50 per cent of assets in stocks, down from 53 per cent a year earlier. Investors held 29 per cent in bonds (up from 28 per cent) and raised allocations to alternative strategies to 7.7 per cent (from 6 per cent). Of the remainder, 7.6 per cent was held in allocation funds and 5.4 per cent in real estate investment trusts (REITs), commodities and cash. The use of low- and minimum-volatility funds tripled since the beginning of 2015, making their way into nearly 18 per cent of advisors’ portfolios.

“The return of volatility to the markets has been a not-so-subtle reminder of the importance of diversification and risk management,” says John Hailer, CEO of Natixis Global Asset Management for the Americas and Asia. “Markets can be unpredictable, so it is important to build durable portfolios that can weather the storm and keep you on track to meet your financial goals.”

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